Ed Fisher: The myth of liberty and justice for all: Part 2

Sunday, June 16, 2013

Last week, I reviewed Joseph E. Stiglitz’s book, “The price of inequality” (W.W. Norton & Company, 2013 paperback edition) and recommend it to those citizens who really care about the trends our economy are taking. The top 20 percent of U.S. families owns 89 percent of the country’s wealth while the rest of us own 11 percent. Stiglitz shows how the top 1 percent has manipulated politicians, regulators and the media over the past thirty years in a one-sided effort to achieve wealth greater than that of the Robber Barons of the late 19th and early 20th centuries.

He explains the economic phrase “rent seeking” and how it has created our unequal society. A family with an empty bedroom can rent it out to help pay the mortgage. This is a benign form of rent seeking. Market forces help shape a degree of inequality and we accept this as rewarding initiative and innovation. However, by manipulating government regulations international banks and businesses receive many benefits without a proportionate increase is social equity. A monopoly, for example, controls a supply and so can charge much more than if there were many suppliers and competition existed. The “rent” in this case is the excess profit the monopoly gains. Oligopolies involve a few giant firms that collude to control a market, international banks, for instance. Government subsidies to agribusiness are another form of rent seeking. Some are even paid NOT to grow crops. When international banks and businesses threaten to move all or a large portion of activity from one country to another if their demands are not met, this is another form of rent. Corporate tax rates become negotiable with the savings going to the top executives rather than being used to improve the company. In these examples rent is excess income for minimal expense (contributions to helpful politicians, for instance). In its many forms this rent seeking has caused the transfer of wealth from the bottom and middle to the top. Thus we have greater inequality than is warranted. Reward and fair play is acceptable. Pure unalloyed greed and corruption are not.

The global market was supposed to be good for all involved through fair trade. This is not what we see. Companies ship jobs to the countries with the lowest wages. Such countries are poor with little regard for worker safety or increased pollution. Were those clothes you bought for summer made in Bangladesh? Cheap is not always good. This practice has moved millions of US middle class workers into low-paying dead-end jobs at minimum wages, which by the way have stagnated over the past ten years because of inflation.

What had been social cohesion, often called the social contract, has been crushed. We are no longer a classless society. It is easily divided into the upper 1%, the professionals in the next 19 percent, a shrinking middle class and the poor with their negative wealth because of foreclosures, repossessions, and credit card swindles. The ability to move even within one’s class is limited. What we witness is moral deprivation. Our overall standard of living is in decline.

We should be able to take pride in our democracy and its institutions. Real democracy is more than the right to vote every two years. In the last election even this right was only grudgingly granted in some states such as Florida. Perhaps we should make voting mandatory as they do in Australia. The results would more closely reflect the will of the people. Here in Michigan, Republicans are trying to rig the way in which presidential votes are distributed. They want the proportion to be to their gerrymandered voting districts. Right-to-work was jammed through in the lame-duck session. The right to marry the one you love has been stifled here. The extreme right even wants to meddle in what can be taught in public schools.

The Republicans find Stiglitz’s analysis inconvenient. However, their job of countering his conclusions will be extremely difficult. He backs his work with over 130 pages of concise notes with sources and additional data. He did not make this stuff up. Our economy is in trouble because of the fiscal and legal paths we have travelled over the past 30 years. Per capita GDP is not a reliable indicator of economic well-being. I know of companies here in mid Michigan who pay their workers for 45 hours a week but demand 55 hours of work: ”Don’t like that? I can get someone else who won’t complain.” This inflates output by cheating on costs, and it happens a lot. Such tactics are shameful.

That CEOs are “job creators” is a myth. Demand causes the need for workers to provide supply. Demand in the U.S. is slowly increasing. Because the 1% has siphoned so much wealth away from would-be consumers, our recovery will be long and rocky. If you can’t hear the fire alarm you’d better get your head above the din of Faux News.